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Buying A Retirement Home Early



In a survey conducted by USA Today, 33 percent of adults aged 45 to 65 plan on moving after retiring. An additional 24 percent are not sure what they will do yet. This data suggests that, for many Americans, housing is a factor that should be taken into careful consideration when planning for retirement. The following elaborates on why buying a retirement home should be a decision made sooner rather than later and why doing so can be an effective method of bolstering your retirement budget.




buying a retirement home early



Buy based on your future income: For those buying a retirement home early, be sure to calculate how much house you can afford based on your post-retirement budget and not on your current income. Even if your monthly income were to stay roughly the same, the amount you can afford to spend on home-related expenses might change significantly.


Be realistic about home-related expenses: Be sure to factor in home-related expenses when calculating your home-buying budget. Costs may increase or decrease based on the age and condition of the property, severity of the weather, or whether or not your future home is part of an HOA or retirement community.


Even if you were convinced of the advantages of buying a retirement home early, by now you might be wondering how exactly you can afford two mortgages at once. Although it may seem counterintuitive, buying a second home now can actually boost your income and help you save up for retirement sooner.


The key here is to think of your retirement home as an investment property. You can use the rental income toward your mortgage payments by leasing out your second property until you are ready to retire. The further in advance you make your acquisition, the more time you have for someone else to pay down your second mortgage. Any rental income not used to pay for expenses can be used to bolster your retirement savings plan. During this time, you will have enjoyed property appreciation on two properties instead of just one.


Once you retire and move into your second home, you can rent out your primary residence instead of selling it. In doing so, you will maintain the additional income stream in your retirement years and can also open up the opportunity to continue expanding your rental portfolio if so desired.


Buying a retirement home will require you to think about your future and anticipate life changes. It can be hard to know exactly what to expect as you get older, but there are a few common mistakes to avoid as you consider your next move:


You can rent a home as an alternative to buying a home for retirement. There are pros and cons to both buying and renting a home, and the correct option for you will depend on many factors. First of all, renting a home will not build equity for you because your monthly payments will be going completely towards rent. At first glance this makes home ownership seem like the smarter option, but there are some risks and tough decisions that come with home ownership.


Even if you are willing to take on a renovation, not all aspects of a home can be changed. This is particularly true of location. Perhaps you bought a vacation-retirement home in a sleepy beach community, the perfect escape from the stresses of the daily grind. Once retired, you may find this setting a bit lonely or lacking enough activities to fill your days.


Increasingly, Americans are moving out of rural areas and into more urban settings. Retirees are often in search of a more convenient lifestyle and better access to everything from medical care to opportunities to socialize. This may not jive with the priorities of pre-retirees looking for a second home and future retirement setting.


Proximity to quality medical care may not be on your radar when buying a home in your 40s or 50s. Especially for those with serious conditions, having access to the best care at a specialized facility is essential.


Buying a second home can strain your financial situation and ultimately push retirement farther away. While some buyers are open to the idea of renting the property (which can be a significant amount of work to manage), others may balk at the notion of strangers living in their future full-time home.


Homeowners who are eagerly looking to move on from a house that will take some time to sell may want to consider putting their home on the market early enough to capture more than one selling season. To avoid carrying multiple homes, you could consider renting if your house sells before your retirement date.


Beyond weather, think about practical problems you could run into. As you get older, will your home be near healthcare? Do you want to be in a peaceful, quiet location or even a retirement community or would you rather be close to the amenities of a big city?


When you buy a house to use during your retirement, you should also consider what your future plans for the house are, even if they eventually change. If you want to live in the house for decades to come, you might buy a different home than you would if you were planning on selling it to move closer to family in 5 years. Additionally, if you plan on eventually using the house as an investment property, that will impact what kind of home you look for, too.


Planning for retirement definitely includes planning for your home, and given the length of time that Hilton Head has been popular, we are now seeing beautiful older homes that have been done-over once or twice ready to hit the market again.


We also spoke to Pat Sokolowski with Metis Wealth, a local financial planner here on Hilton Head what else we should be looking for when thinking about buying a retirement home, and she had valuable advice.


The rental market in Hilton Head is extraordinarily conducive to making your retirement home lucrative for you well before retirement, buying early allows you to treat the property as a rental to offset the costs of ownership . We are planning some more expansive info about the real estate market in the Lowcountry, so make sure to like our Facebook page to get notifications when we have a new article published.


Scenario One. The couple has $800,000 in their employer plans and $200,000 in a taxable account. "People tend to have more in their retirement accounts than in taxable accounts," Taylor says. The couple intends to take $70,000 from their taxable account as a down payment and borrow the rest with an 8% loan. Their yearly payment on the second house, including taxes and upkeep, will be $28,000.


Scenario Three. The couple decides not to buy a new home until they retire at 65. The $1 million portfolio is split equally between retirement and taxable assets. By the time they buy, the retirement house will have risen in price to $425,000.


  • The short answer is yes, since it is your money. While there are no restrictions against using the funds in your account for anything you want, withdrawing funds from a 401(k) before age 59 will incur a 10% early withdrawal penalty, as well as taxes. So, while it is possible to tap your 401(k) in lieu of a mortgage loan, it would end up being a very expensive source of funds, not to mention being disruptive to your retirement savings."}},"@type": "Question","name": "When Can You Withdraw From a 401(k) Without Penalty?","acceptedAnswer": "@type": "Answer","text": "You can withdraw money from a 401(k) without paying a penalty in these situations:Medical debt that exceeds a percentage of your adjusted gross incomeA permanent disabilityA court-ordered withdrawal to pay a former spouse or dependentActive dutyDown payment for a first homeYou owe the Internal Revenue Service (IRS)Death of the accountholderIncome after your official withdrawal age","@type": "Question","name": "How Much Can You Take Out of Your 401(k) to Buy a House Without Penalty?","acceptedAnswer": "@type": "Answer","text": "You can take out a 401(k) loan for the lesser of half your vested balance or $10,000, whichever is more, or $50,000. You will incur interest that will be paid to your account, and you will not be able to make contributions until the loan is repaid.","@type": "Question","name": "How Much Can You Take Out of Your Individual Retirement Account (IRA) to Buy a Home?","acceptedAnswer": "@type": "Answer","text": "Individual retirement account (IRA) withdrawals for first-time homebuyers or individuals who have not owed a home for at least two years are allowed to withdraw $10,000 from their IRA with no penalty. You can use that money to buy, build, or rebuild a home.","@type": "Question","name": "Can I Withdraw Money From My 401(k) to Buy a Second House?","acceptedAnswer": "@type": "Answer","text": "You can withdraw money from 401(k), but you will incur an early withdrawal penalty of 10% as well as taxes. In certain first-time homebuyer situations, you can avoid the penalty and taxation, but not when using the funds for buying a second home."]}]}] Investing Stocks

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